The issue of intervention
The news that the European Union is going to use intervention to help prop up the skimmed milk powder (SMP) and butter prices in the EU was not greeted with widespread joy everywhere in the dairy industry last week. In fact, the Americas as a group, both South, Central and US processor associations, have together published a letter asking the EU to not to use intervention as a tool to help the bloc’s market.
As we have discovered, the law of unintended consequences strikes regularly with such measures. And it is always a bit alarming to see where one side sees help, the other side does not perceive it as such and instead calls it market distorting. It always just depends on what side of the fence one is on, I suppose.
I found this part from the letter the most poignant: “Farmers and dairy processors in our countries and many others around the globe are already in the fight of their lives. We are all dealing with great enough challenges already in our own markets. If the EU does not commit to avoid distorting global markets by dumping their excess intervention stocks onto the world market just as dairy sectors begin to recover, more farmers and processors outside the EU could be forced to close their doors.”
We have seen the issue of intervention causing imbalances in African markets in the past. Only a couple of years ago, African farmers came to Brussels to protest the EU stocks that were being offloaded into their markets. “The European Union intervened in 2016-17 and held the equivalent of 16% of the global SMP market in government storage. It subsequently released the product on the world market over the next two years, unfairly undercutting international prices and harming the global dairy industry,” the letter notes.
The EU is such a large player in the dairy processing industry, but as such it means the bloc has to proceed with caution and find ways to make the current situation better for its members, to ensure their survival in these challenging times. I’m not sure the best way of doing this is by stepping on and diminishing the less-developed markets of others. These short-term actions can have long-term consequences.